Readers hoping to buy Swire Pacific Limited (HKG:19) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Swire Pacific's shares before the 1st of September in order to receive the dividend, which the company will pay on the 19th of September.
The upcoming dividend for Swire Pacific will put a total of HK$8.12 per share in shareholders' pockets, up from last year's total dividends of HK$3.05. If you buy this business for its dividend, you should have an idea of whether Swire Pacific's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Swire Pacific
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Swire Pacific paid out more than half (68%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 84% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's positive to see that Swire Pacific's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Swire Pacific's earnings per share have fallen at approximately 23% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Swire Pacific has seen its dividend decline 1.4% per annum on average over the past 10 years, which is not great to see.
From a dividend perspective, should investors buy or avoid Swire Pacific? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Swire Pacific.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Swire Pacific. Every company has risks, and we've spotted 1 warning sign for Swire Pacific you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.